ARA Report Writing & Ethical Standards 3 — Questions and Answers
Question 1: In a rural appraisal report, when the cost approach is used, which item must be clearly identified and supported?
- The listing agent's commission rate
- Depreciation amount and its basis (Correct answer)
- The county assessor's assessed value
- The subject property's purchase price
Correct answer: Depreciation amount and its basis
The cost approach requires the appraiser to clearly identify and support the depreciation estimate applied to improvements.
Question 2: A rural property appraisal report must adequately describe the subject's agricultural characteristics because:
- USDA regulations mandate it for all reports
- These characteristics directly influence market value and highest and best use (Correct answer)
- Farm credit lenders require crop yield history
- State law requires disclosure of soil types
Correct answer: These characteristics directly influence market value and highest and best use
Agricultural characteristics such as soil quality, water rights, and productivity directly affect the property's market value and highest and best use conclusion.
Question 3: When reporting market conditions in a rural appraisal, an appraiser should include:
- Local school district rankings
- Supply and demand trends for similar rural properties in the market area (Correct answer)
- The county commissioner's economic development plan
- Commodity futures prices for the next 12 months
Correct answer: Supply and demand trends for similar rural properties in the market area
Reporting supply and demand trends for comparable rural properties gives the reader context for the market value conclusion.
Question 4: An appraiser who advertises guaranteed results or a specific value conclusion before completing the analysis violates which USPAP rule?
- Scope of Work Rule
- Ethics Rule – Conduct section (Correct answer)
- Competency Rule
- Record Keeping Rule
Correct answer: Ethics Rule – Conduct section
Advertising guaranteed or predetermined results violates the Ethics Rule's Conduct section, which prohibits advocacy for a client's cause to the detriment of objectivity.
Question 5: When comparable sales involve properties with water rights and the subject does not, the appraiser must:
- Exclude those comparables entirely
- Make a downward adjustment to the comparables for the water rights they possess (Correct answer)
- Disregard water rights as a personal property item
- Average the price per acre without adjustment
Correct answer: Make a downward adjustment to the comparables for the water rights they possess
Comparables with water rights are superior to the subject in that attribute; the appraiser must make a downward adjustment to those sales to reflect the subject's lack of water rights.
Question 6: The SCOPE OF WORK RULE requires the appraiser to identify the problem and determine the scope of work necessary to:
- Satisfy the client's preferred value range
- Produce credible assignment results (Correct answer)
- Meet the minimum page-count requirements
- Align with the lender's underwriting guidelines
Correct answer: Produce credible assignment results
The Scope of Work Rule states that the appraiser must do what is necessary to produce credible assignment results given the intended use.
Question 7: Under USPAP, an appraiser's work file for each appraisal must be retained for a minimum of:
- 3 years from the date of the report or 2 years after final legal proceedings, whichever is longer (Correct answer)
- 1 year from the date of the report
- 5 years from the date of the report
- 10 years from the date of the assignment
Correct answer: 3 years from the date of the report or 2 years after final legal proceedings, whichever is longer
USPAP Record Keeping Rule requires retention for at least 5 years from the report date or 2 years after final legal proceedings, whichever is longer.
ARA Report Writing & Ethical Standards 3
In a rural appraisal report, when the cost approach is used, which item must be clearly identified and supported?